Thursday, December 20, 2007
Deb Price / The Detroit News
WASHINGTON -- President Bush will sign a bill today that will help struggling homeowners by no longer requiring them to pay taxes when their lender forgives part of their mortgage.
The change, says U.S. Sen. Debbie Stabenow, D-Lansing, means more Michigan families will be able to keep their homes during difficult times.
"This guarantees that someone who loses their home in foreclosure or is forced to refinance at a rate below their mortgage does not have insult to injury added by getting another tax bill," said Stabenow, who authored the Mortgage Forgiveness Debt Relief Act and will attend the signing ceremony.
"In Michigan, we have many middle-class families who are holding on for dear life. And we need to do everything we can to help them," she said.
But Gerald O'Driscoll, a banking expert at the Cato Institute, says that the change could have unintended ramifications of rewarding homeowners for risky behaviors.
"It may seem innocent enough to try to help people in these kinds of jams," he said. "But you can end up with lenders feeling pressure to cut deals they wouldn't have otherwise, and homeowners feeling like they'll get bailed out of risky decisions."
This year, Stabenow said, Michigan has recorded more than 135,000 foreclosures.
In the third quarter of this year, Metro Detroit saw 1 of every 33 households in foreclosure, the second highest level in the country.
Falling home prices and the high jobless rate in Michigan have made it difficult for many homeowners to keep up with their monthly mortgage payments.
If their lender allowed them to refinance a home from a $200,000 loan to a $175,000 loan, for example, they would be hit with a tax bill as if the $25,000 were income.
"Lenders want you to be able to keep your home and pay your payments," Stabenow said. "It's common for lenders to forgive a portion of a loan in refinancing if it's above what they believe the house could sell for."
Deb Price / The Detroit News
WASHINGTON -- President Bush will sign a bill today that will help struggling homeowners by no longer requiring them to pay taxes when their lender forgives part of their mortgage.
The change, says U.S. Sen. Debbie Stabenow, D-Lansing, means more Michigan families will be able to keep their homes during difficult times.
"This guarantees that someone who loses their home in foreclosure or is forced to refinance at a rate below their mortgage does not have insult to injury added by getting another tax bill," said Stabenow, who authored the Mortgage Forgiveness Debt Relief Act and will attend the signing ceremony.
"In Michigan, we have many middle-class families who are holding on for dear life. And we need to do everything we can to help them," she said.
But Gerald O'Driscoll, a banking expert at the Cato Institute, says that the change could have unintended ramifications of rewarding homeowners for risky behaviors.
"It may seem innocent enough to try to help people in these kinds of jams," he said. "But you can end up with lenders feeling pressure to cut deals they wouldn't have otherwise, and homeowners feeling like they'll get bailed out of risky decisions."
This year, Stabenow said, Michigan has recorded more than 135,000 foreclosures.
In the third quarter of this year, Metro Detroit saw 1 of every 33 households in foreclosure, the second highest level in the country.
Falling home prices and the high jobless rate in Michigan have made it difficult for many homeowners to keep up with their monthly mortgage payments.
If their lender allowed them to refinance a home from a $200,000 loan to a $175,000 loan, for example, they would be hit with a tax bill as if the $25,000 were income.
"Lenders want you to be able to keep your home and pay your payments," Stabenow said. "It's common for lenders to forgive a portion of a loan in refinancing if it's above what they believe the house could sell for."
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